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ECB Rallies Euro Buyers

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The European Central Bank (ECB) yesterday refused to further cut the key Refi Rate from its already historic lows of 0.25%. This should have triggered an immediate sell off in the Euro but the market held it’s fire and waited for the ECB follow-up press conference. A clear sign of the markets trust in ECB President, Mario Draghi.

Draghi didn’t disappoint. He was noticeably more upbeat on the prospects for the Eurozone economy, particularly so on the thorny issue of inflation. The markets took a lot of solace in the ECB’s declaration that falling inflation was under control and that the 2% target would be met over the course of the next 2 years.

The Euro reacted sharply to the rhetoric from the bloc’s top central banker. Buyers immediately took the single currency a full figure higher, in the process destroying the $1.38 resistance level that has been in place since last October.

It is very evident that the threat of deflation has been weighing heavily on the Euro since the start of this year. The lifting of this threat has entirely changed the markets outlook towards the single currency and the economics of the Eurozone as a whole. There is pent up demand for the Euro with buyers now just looking for even the slightest reasons to put in the order. French trade numbers this morning missed target, albeit very narrowly, two weeks ago this would have triggered a minor Euro sell off, today however the news resulted in a 15 point rally.

The rapid change in sentiment makes it difficult to see anything but one direction for the Euro over the coming sessions. There may a little relief selling as we approach the psychological $1.40 level but once this is cleared there is very little in the way of resistance until $1.4177.

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